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On February 8, 2006, online students got a boost in their ability to pay for distance education. The Higher Education Reconciliation Act (HERA) struck down the 50-percent rule, a 1992 statute denying online students equal access to certain types of federal loans. Specifically, students at universities providing more than 50 percent of their courses online couldn't qualify for Title IV, HEA financial assistance. Now, they do.

Clearly, this is a money boost for accredited online education providers and distance learners, but it's a status boost as well. Congress has seen fit to remove distance learning from the "correspondence school" category and to equate online study with more traditional forms of education.

What does this mean to you? If you're contemplating an online degree, you now have more ways to finance your education. The really good news is that you can finance any accredited program of study--even short-term certificate programs lasting less than a year--with previously unavailable federal funds.

The Fight Over the 50-percent Rule

In its "Third Report to Congress on the Distance Education Demonstration Program," the Department of Education called for the repeal of the 50-percent rule and the requirement of "substantial interaction" between online faculty and students who telecommute to classes. Rep. John A. Boehner of Ohio, chairman of the House Committee on Education and the Workforce, urged his fellow lawmakers to eliminate "outdated barriers...so that colleges and universities aren't stifled in their attempt to increase access to higher education through innovation and technology."

While politicians and educators see the downfall of the 50-percent rule as a boon to the for-profits and virtual universities, the ultimate gain may be in educational options for students. Traditional campus schools, who capped their online offerings for fear of growing past the 50-percent mark, can now offer more online courses in response to student demand.

Recently, with the end of the 50-percent rule, the newswires have buzzed with the announcements of state funding for educational technology. Tiny Maryland will spend as much as $900 million, Illinois plans to spend $1.1 billion, and California's poised to invest a whopping $5.5 billion to enhance wired learning. Clearly for-profits and state online programs alike expect to benefit from the quality endorsement implied by the changes in federal education funding.

Caveat Online Degree Emptors

Given the many quality online institutions that exist today, the 50-percent rule seems arbitrary at best and outright discriminatory at worst. However, the laws denying federal funding for predominantly or exclusively online study originally arose out of the diploma mill scandals of the early 1990s. According to journalist Dan Carnevale, who frequently writes about online education, diploma mills provided students with federal funding but "no viable education." Students got stuck with worthless degrees and massive loan debts.

Not surprisingly, some students who felt cheated by diploma mills also felt entitled to ignore their loan repayments. They defaulted at three times the rate of other student debtors, and taxpayers got stuck with the bill. Now, with the repeal of the 50-percent rule, critics of online education fear the return of diploma mills.

Only time will tell, but today's students are well advised to check the accreditation of online education providers carefully. Well-established online universities--some with pre-Internet pedigrees going back a half century or more--remain the safest educational investment in the new and improved world of federal funding for Internet education. The "click and mortar" online offerings of traditional campus-based schools are also safe.

Online Degrees: the Word Is "Access"

The 50-percent rule has long drawn fire from champions of equal access to higher education like House higher education oversight chairman Buck McKeon. The Representative saw the rule as out of touch with the needs of non-traditional and minority students as well as part-timers. "Some of America's most vulnerable students are being deprived of a postsecondary education," he insisted.

Statistics bear McKeon out, since Black and Hispanic students are disproportionately represented among online degree seekers. So are second job seekers and, for that matter, soccer moms in their mid-thirties. All now find themselves with funding options they didn't have before the February rule change.

Online Universities Finally Get Federal Validation

Online education providers, especially the for-profits, have lobbied to rid themselves and their students of the 50-percent rule for some time. Why? With less access to funds, their students accrue more debt than students at traditional levels. In fact, 88 percent of those graduating with bachelor's degrees from the for-profit sector graduate with debt.

The median debt of students graduating from public four-year degree programs is about the same as the median debt of students graduating from two-year for-profit schools, according to College Board reports. Clearly, online degree seekers--many of whom will opt to study with the large for-profits--have a lot to gain from the estimated $697-million increase in government aid that will come their way over the next ten years.

So What's the Bottom Line for a (Potential) Student Like You?

By all measures, online education is a growth industry, and students (both traditional college age and nontraditional 22- and over) are choosing distance learning in ever-greater numbers. Though estimates of the number of online students vary because "online education" means many things to many people, those who measure online degree programs predict continued strong growth.

The most recent report by the Sloan Foundation puts the skyrocketing increase in the number of students taking at least one course online at 18 percent, an increase of approximately 500,000 students a year.

50 Percent Graph 1
Number of Students Taking at Least One Course Online

Peter Stokes, Executive Vice President, Eduventures, Inc., an online education consulting firm, offers one portrait of the possible growth in online degree programs in the adult population. (Nearly six in ten students today is age 22 or older.)

50 Percent Graph 2
Adult Learners Willing to Pursue Fully-Online Degrees

Many prospective adult learners can qualify for some of the federal funding that's now available. It's no stretch to predict that a leap in funding will cause a leap in online degree programs, since "more than 22 percent of prospective adult learners who choose not to enroll cite cost as an obstacle," says Stokes. In spite of costs and personal constraints, 92 million adults were taking some form of adult education in 2001, says the National Center for Education Statistics.

Until now, online undergraduate students had no access to the bulk of the federal Title IV funding depicted in the chart below. The grey section emphasizes the 57 percent of funding that has been unavailable to students in largely- or fully-online programs. Another major source of funding--institutional grants--tends to be unavailable to students at online for-profit institutions. Obviously, the for-profits owe it to their stockholders not to give away their profits. Still, some do offer a bit of grant money, and most help students find external grant support. Thanks to the end of the 50-percent rule, this job just got a whole lot easier.

50 Percent Graph 3
Sources of Funding for Online Degrees
(Under the 50-percent Rule)
Based on College Board Estimates of Student Aid by Source for Academic Year 2004-05

Up to now, online students have had access mainly to private grants, employer funding (for which employers receive tax relief), and tax deductions for educational expenses. Not surprisingly, graduates of for-profit online associate and bachelor degree programs graduate with the most debt: $16,100 and $24,600, respectively. The best case scenario for these undergraduate students would be to more nearly resemble their private four-year college brethren, who now average $9,600 per student in grant aid.

Here's a picture of the whole educational pie, a map of what has been available to students whose institutions offered more than half of their courses at traditional brick-and-mortar locations. Monies that went to campuses in the past can go to online programs in the future. This includes federal Title IV Pell grants and Stafford loans, state grants, institutional grants, and other monies. How big is this newly available pie? Over $128 billion.

50 Percent Graph 4
Sources of Funding for All Baccalaureate Degrees (in billions)
Based on College Board Estimates of Student Aid by Source for Academic Year 2004-05

With more grant and low interest loan money available, many students will find online degree study attractive. Students who've already opted for online study point out the many ways they save by pursuing virtual degrees: there are no additional expenses for room and board, no expensive gas bills or lost commute time, and no babysitting outlays for single parents. Add on the nearly $70 million windfall from the end of the 50-percent rule, and online degree seekers suddenly have much, much more to be thankful for.

Proponents of access to education should be celebrating, too. They're much closer to the goal of financially leveling the educational playing field for online learners. Since major online universities have minority enrollments of 40%, more money will be available to "traditionally underserved" students. Whether you see yourself in this underserved student population or not, you owe it to yourself to explore what the end of the 50-percent rule means for you--especially if, in the past, money issues have kept you from pursuing an online degree.


  • Alfred P. Sloan Foundation. Growing by Degrees: Online Education in the United States, 2005 (third annual report on the state of online education).
  • Berkner, L., et.al. 2003-04 National Postsecondary Student Aid Study (NPSAS:04): Undergraduate Financial Aid Estimates for 2003-04 by Type of Institution. (NCES 2005-163). U.S. Department of Education. Washington, DC: National Center for Education Statistics. (June, 2005).
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  • ---. "A Federal Rule Bedevils Online Institutions." Chronicle of Higher Education 50.16 (Dec 12, 2003).
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  • National Center for Education Statistics (NCES).
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  • U.S. Department of Education.